BUY Zensar Technologies: Robust growth prospects, broad-based revenue stream, long-standing customer relationships, and good client wins in recent months are positives

Zensar Technologies: Buy

 

Robust growth prospects, broad-based revenue stream, long-standing customer relationships, and good client wins in recent months are positives

 

Investors can consider an exposure in small lots in the Zensar Technologies (Zensar) stock with a medium-term perspective. At the current market price, the stock trades at a price earnings multiple of 15 times its 2005-06 consolidated earnings. We recommend investors to use any weakness in the stock to step up exposures. The company's robust growth prospects, broad-based revenue stream, long-standing customer relationships, and good client wins in recent months are positives linked to this stock. However, the risks to our recommendation are a slowdown in IT spending in the US, high client concentration and slower-than-anticipated offshore shift by clients.

 

Financials

The company has projected consolidated revenues of Rs 550 crore and post-tax earnings of Rs 50 crore for 2006-07, working out to a 28 per cent growth in revenues and 47 per cent rise in post-tax earnings over 2005-06. The Zensar management proposes to achieve these financial projections by increasing the offshore contribution by two percentage points to 48 per cent in 2006-07, bringing down the contribution of the top ten clients by three percentage points to 65 per cent and by enhancing the profit before tax to 10.9 per cent from 9.6 per cent in the previous year.

Zensar started off on an encouraging note in the first quarter ended June 30, 2006. While the company clocked a sequential (quarter-on-quarter) growth in revenues of 10 per cent to Rs 137.78 crore, its post-tax earnings declined to Rs 14.69 crore from Rs 16.47 crore over this period. Year-on-year, however, there is a near four-fold rise in post-tax earnings. On a sequential basis, the operating profit margin dipped to 14.5 per cent from 17.3 per cent, but is up from 8.4 per cent on a year-on-year basis.

Business segments

The company operates four business segments: Applications Portfolio Management; Enterprise Solutions; Innovative Technology Solutions, and Business Process Outsourcing (BPO). The applications portfolio management is the core segment for Zensar across all geographies. It accounted for 55 per cent of revenues and 84 per cent of operating profits in the first quarter of 2006-07.

In the enterprise solutions segment, Zensar has positioned Oracle applications as its core strength. Through the acquisition of OBT Global, it has expanded its portfolio strength to SAP, catering to key verticals of pharma, textiles and engineering. It is building on these competencies by opening up a centre in Hyderabad. The segment contributed 28 per cent of revenues and 35 per cent of operating profits. It has added business intelligence, data warehousing and enterprise content to its portfolio of offerings.

Its innovative solutions segment deploys the Solutions Blueprint led process automation technology that can help software product companies and large multinationals migrate legacy applications to open source technology platform.

Though this segment has incurred operating losses in the latest quarter, it can scale-up and has the potential to contribute positively to the company's financials.

Since some of the service lines have matured significantly, the company has identified new service offerings such as application modernisation, product engineering services, business intelligence, testing and BPO as high growth avenues for the coming quarters. It is also in the process of integrating its application services and BPO into one segment to offer a single point solution to its clients.

Source: businessline

Atlanta, Deep Industries and KEW Industries will list on September 25, 2006.

Atlanta, Deep Industries and KEW Industries will list on September 25, 2006.

1] Atlanta

Atlanta, the company in the business of construction, infrastructure and mining, will list on BSE and NSE. Its BSE ID is 532759 and NSE ID is ATLANTA. The offer price was fixed at Rs 150 per share.

The company had entered in the capital market with initial public offering, IPO of 43 lakh equity shares of Rs 10 each through a 100% book building process. The issue was subscribed 10.02 times.

The company proposes to utilise part of the net proceeds of the issue for investing in Balaji Tollways, a SPV set up for the execution of the Nagpur-Kondhali four-lane BOT project.

2] Deep Industries

Deep Industries, provider of air and gas compression services to oil and gas exploration companies, will list on the Bombay Stock Exchange. Its BSE ID is 532760. The offer price was fixed at Rs 36 per share.

The company had entered in the capital market with a fixed price IPO of 1,13,00,000 equity shares of Rs 10 each at a price of Rs 36 aggregating to Rs 40.68 crore (Rs 406.8 million).

Deep Industries proposes to utilize the funds raised through this public issue to part finance its plans for procurement of plant and machinery for business expansion and office equipments valued at Rs 51.50 crore (Rs 515 million).

The total fund requirement along with working capital need is estimated at Rs 60.28 crore (Rs 602.8 million). The company has already made pre-issue/allotment of 22 lakh equity shares to promoters, promoter group and others at Rs 30 per equity share aggregating to Rs 6.60 crore (Rs 66 million). The company has received sanction of Rs 13 crore- (Rs 130 million) term loan from Union Bank of India.

3] KEW Industries

KEW Industries, a manufacturer and supplier of defence stores and automobile components for OEMs, will list on BSE and its BSE ID is 532758. The offer price was fixed at Rs 30 per share.

The company had entered in the capital market with a fixed price public issue of 70,00,000 equity shares of Rs 10 each at a price of Rs 30 aggregating to Rs 21 crore (Rs 210 million).

The company intends to utilize the proceeds of the issue for modernization and expansion of manufacturing facility and expansion of research and development facilities. It is targeting to increase its presence across its core business areas of manufacturing automotive components. The growth witnessed by automotive sector has also created significant opportunities for auto component manufacturers, which encourages expansion and investment.
 
KEW Industries, enjoying the reputation of a known manufacturer of automotive components and shell bodies for Ministry of Defence, has well established its brand for product range in the domestic and export markets. It manufactures SG Iron and Cast Iron products for domestic and export markets.

Its major client portfolio includes Ashok Leyland, Tata Motors, Punjab Tractors, Indian Ordinance Factories under Ministry of Defence, and Rail Coach Factory at Kapurthala.

With the change in domestic and international market scenario, KEW has started diversifying its concentration towards automobile sector. The company is exporting auto components to CBM HPA in Italy and Defontaine in France.

Source: Moneycontrol

JHS Svendgaard Laboratories IPO: Invest at cut-off

JHS is set to gain from contract manufacturing orders from retailers, who are increasing the shelf space allocated to their own brands or private labels.

 

Investors with an appetite for risk and a long-term perspective can consider the initial public offer of JHS Svendgaard Laboratories (JHS), a contract manufacturer of oral-care products such as toothbrushes, toothpaste, whitening products and mouthwash.

The price band of Rs 49-58 values the offer at 6-8 times the 2005-06 per-share earnings (pre-issue). JHS has no comparable peers in the listed space. The company is investing Rs 50 crore in a project that will expand its capacities several fold.

The new facilities will be operational by December, but the benefits of the expansion will most likely be realised only the next fiscal.

Business prospects

The company is in the early stages of an emerging opportunity. Buoyant trends in the oral-care segment augur well for contract manufacturers, with FMCG players launching new products. For JHS the opportunities are in catering to the rapidly expanding retailers.

Players such as Reliance and Pantaloon are seeking to increase the shelf-space allocated to their own brands or private labels. Private labels are products offered at a cost lower than the branded ones, but offer retailers better margins.

Contract manufacturers such as JHS gain by undertaking orders from retailers, as they have better scope for adding value through in-house designs and processes. Margins from retailers are estimated at 30-40 per cent more than that derived from FMCG players. At present, the majority of sales is derived from FMCG companies.

An aggressive push in the retailer segment could, however, enhance profitability; operating margins now stand at about 19 per cent. It will also offset any cutbacks in outsourcing by traditional FMCG marketers.

JHS recently broadened its portfolio from mainly toothbrushes, which is typically low-margin, to include toothpaste, whitening agents and niche products such as denture effervescent tablets, some of which fall in the pharmaceutical domain. The oral-care market in India is still underdeveloped and some of these niche or premium products may be sold mostly in the export market.

Exports have been a strong driver of revenues. JHS started exporting toothbrushes in 2002-03. It already derives about 50 per cent of its Rs 35-crore revenue from exports. International retailers appear serious in their plans to increase sourcing from India, and JHS will have to take advantage of this trend.

Challenges

While the business outlook is bright, JHS, which has been in operation for about a decade, appears to have gained ground only in recent years. JHS' limited track-record heightens the risk of the ambitious scale of its expansion project. Products such as floss and mouth rinse that are in demand in the West are yet to take off in a big way in India, where dental hygiene awareness is poor, even in urban markets.

Also, while retailers in international markets have successfully sold private labels across categories, in India, they are yet to make a mark in segments dominated by brands.

JHS hopes to carve a market for itself by being the only one-stop-shop manufacturer of oral-care products. The bulk of its production will be in Himachal Pradesh, where several FMCG players have set up facilities. Most of its production will not attract excise duty and its profits will be almost tax free. JHS will be able to position itself as a cost efficient producer to domestic and export customers alike.

Risks

As the only listed player of its kind, JHS may enjoy fancy on the back of the uptrend in FMCG. Given the incipient stage of its business, however, JHS' ambitions may take longer than expected to fructify.

With the equity base post-offer set to more than double, markets will stress on strong performance. The per-share earnings may fail to keep pace with profit growth.

JHS does not exclusively manufacture products for any single player. It is, however, dependent on a few players, who could wield considerable buying power. Minor changes in the contract agreements could have an adverse impact on performance. As a small-cap stock, it remains vulnerable to market risks. Conservative investors may avoid the issue and look for entry points in the secondary market at a later stage.

Offer details: On offer are 67 lakh shares, of which the promoter will subscribe to five lakh shares. About Rs 40 crore will be raised at the higher end of the price band. The Rs 50-crore project is to be funded by a mix of debt and equity. The offer opens on September 26 and closes on October 4. The lead managers are UTI Bank, Centrum Capital and Bajaj Capital.
 

Source: Business Line